Cantillon

YESTERDAY THE Department of Transport reiterated that a “number of parties” had expressed an interest in acquiring the State’s 25 per cent stake in Aer Lingus.

But there’s a long distance between expressing an interest and actually making an offer whenever the Government does decide to sell.

Etihad has made no secret of its interest in Aer Lingus. The Abu Dhabi airline is expanding aggressively and has significant ambitions in Europe. It recently took a strategic stake in Air Berlin.

As revealed in
The Irish Timesyesterday, JetBlue is a preferred option of Aer Lingus’s management in terms of a trade buyer.

Why JetBlue might want to invest in Aer Lingus is not immediately clear. It has a similar business model and the two airlines have had a successful sales agreement for the past four years. They also don’t compete head-to-head on any routes.

But JetBlue has shown no great desire, to date, to expand outside North America.

Perhaps Aer Lingus’s executives don’t fancy having Etihad’s Australian chief executive James Hogan – a no-nonsense type of guy – looking over their shoulder. Or perhaps they are concerned that Etihad might covet Aer Lingus’s prized Heathrow slots for its own purposes.

This will ultimately be a Government decision and the attraction of the wider benefits that Etihad might be able to bring to Irish tourism could prove hard to resist.

Yet all of this ignores two crucial factors. No trade investor will touch Aer Lingus until its pension deficit is sorted out.

And what is Micheal O’Leary’s plan for Ryanair’s 29.8 per cent stake? Will he sell, will he hold, or will he make a bid of his own for the Government’s stake?

We’ll only know the answer when he finally makes his move. It’s a crucial piece of the jigsaw though. It’s one thing competing on the runway with O’Leary. It’s another altogether having him sniping from the wings as a shareholder.

Still no explanation of Central Bank's failings in CHC disaster

THE €90 million Customs House Capital disaster is back in the news following the decision of some clients to object to being charged €225,000 for the privilege of getting what is left of their money back from the liquidator.

The case will no doubt highlight once again the issue of professional fees and how some accountancy and legal firms seem to to be doing very well out of the current crisis and associated scandals. The fact that these professions were so well represented in CHC’s client list adds a touch of irony, but the issue is a serious one.

Entertaining though this spat may be, it remains nothing but a side show to the actual CHC debacle, which has left a litany of unanswered questions in its wake. First and foremost is why the regulator delayed so long in deciding to shut down the business.

The second report of the liquidator – circulating as part of his application to deduct the cost of establishing ownership of their assets from CHC clients – underlines the point pretty well, if unintentionally. Kieran Wallace of KPMG attaches copies of the correspondence between the Central Bank and CHC between February and April last year. Each letter placed further restrictions on what CHC could do with respect to its clients’ cash, but with hindsight they all seem rather inadequate given what emerged in the wake of the appointment of inspectors in July last year. The inspectors did not deal with the role of the Central Bank in their report, although they did point out that CHC “deliberately adopted and pursued processes, policies, and procedures that facilitated misconduct”, including the concealment of information from the Central Bank.

This would appear to support the default defence mounted by failed regulators everywhere, which is, if someone sets out deliberately to mislead, it’s very hard for routine surveillance to uncover wrongdoing. Indeed, the true extent of what transpired only came to light when CHC attempted to transfer some of its business to another firm in July last year.

But this still only amounts to a partial explanation as to why the Central Bank failed to pick up on signals going back as far as 2009 that all was not well at CHC.

A more detailed explanation of why the system failed and the reforms put in place as a consequence would be welcome and overdue.

Mortgage timebomb gets louder

AN INDICATION of how the ticking residential mortgage timebomb might yet affect the banks was given in a rating downgrade from Moody’s yesterday.

Citing “weak, deteriorating performance”, the ratings agency downgraded approximately €4.5 billion of residential mortgage-backed securities (RMBS) in the Celtic 9, 10 and 11 programmes, which were issued by First Active back at the height of the property boom in 2005.

And as if this wasn’t bad enough, Moody’s has also suggested that the personal insolvency legislation, proposed in January, could lead to further downgrades, if it leads to a writedown of the mortgage debt supporting the notes. Last month the ratings agency predicted that a quarter of all Irish mortgage debt are susceptible to writedowns under the proposed legislation.

Moreover, it expects that “rising unemployment and falling incomes, which stem from the austerity measures in Ireland, will continue to hurt borrowers’ ability to fulfil their financial obligations”.

According to Moody’s, mortgages in the securitisation vehicles, which are now managed by Ulster Bank, are performing worse than expected since its review last July, with “ongoing rapid deterioration in performance”.

Arrears of more than 90 days now account for up to 15.2 per cent of the total portfolio in the RMBS, an increase of 20-40 per cent since last July, while mortgages in default now account for up to 5.7 per cent of the total pool, an increase of between 30-45 per cent on last June.

Quote of the day

"Spain has to make an effort . . . We’ve got to be tough in the first round of monitoring so that everyone knows we’re serious"